Which loan? 97 conventional or 96.5 fha?

Question

I'm looking into purchasing a single family home in the mid 300s range. Income is more than fine, debt to income is 5%, only issue is credit is only 650. All the lenders I've talked to keep pushing FHA but I'm afraid I'll be stuck with MIP and won't be able to refinance at a decent rate later. Thoughts?

Chris Mason · Answer

I'm doing mortgages in the hottest market in the country and I write up FHA loans not infrequently. Some Realtors can be self-defeating.

FHA does mean you're not going to get the hottest most attractive turnkey dead sexy house to hit the market, yes. But it doesn't make it impossible. You might have to write 5 or 15 offers before one is accepted.

Which of course means your Realtor is doing 2 to 15 times as much work relative to if you go the conventional route, that is also true.

A happy middle ground, if you wish, is to not have your Realtor doing private showings. Instead of having them show you 10 houses, go to 10 open houses. And on the other end of the spectrum, high DOM often have motivated sellers, not crazy to have your Realtor do showings of those. I'm not a Realtor, but I can see why a Realtor would be hesitant to do 10 or 15 private showings a weekend for an FHA buyer in a hot market.

Chris Mason · Answer

I ran the scenario both ways, and FHA is going to run you like $400/mo cheaper than conventional on a $400k purchase price (just noticed the "mid 300s" range part, but that won't really change anything). FHA mortgage insurance will be less per month and the interest rate will be ballpark a full 1% lower. There are certain things priced so poorly that loan officers don't even want to quote it, and this is one of them. It's not even close, you'd be crazy to go conventional.

680ish to 700ish is where you can go either way and it not be crazy, over 700 usually you stick with conventional.

Russell Brazil · Answer

Get your credit up, then go 3% conventional.

Harjeet Bhatti · Answer

@Jessica Thomas  620 FICO is minimum requirement for conventional loan. You may see lower interest rate in FHA in your loan scenario compare to conventional loan but make wise decision by getting presentation  from your lender.

@Jessica Thomas  620 FICO is minimum requirement for conventional loan. You may see lower interest rate in FHA in your loan scenario compare to conventional loan but make wise decision by getting presentation  from your lender.

Brent Paul · Answer

Long term I think conventional would be better in your situation.

There is always room for improvement with credit.  Anyone that says they can't raise your score doesn't know what they are talking about.  With that said 650 is pretty good to start out with.   My score went from 750 to 500 after a foreclosure.  I raised it back up to almost 750 and bought a house.  It can be done.  Don't pay for one of those credit repair companies it's a huge waste of money.  All of the information is available for free.

I'm guessing you have no student loans or car loans?  You need credit to build credit.  Having only 1 credit card with no other loans in your name, and paying it off every month builds your credit very slow.  Trust me I have been there.  But do not go open a bunch of new cards if you are already pre approved as that can hurt your score.

Jessica Thomas · Answer

Another thing is it's a total sellers market here and I'm seeing some houses where FHA is not even listed. I know my realtor can call and see what their issue is and perhaps see if they would entertain fha but I feel like I would appear like an unstable option with am Fha despite the high income.

Jessica Thomas · Answer

Yea it's a full point and a half more... I guess I just want to make sure I make the right decision. I'm not sure why I'm so afraid of later refinancing into a conventional...

Jessica Thomas · Answer

about 1.4 pmi on conventional

fha would be more cash to close, its 3.5% down

I was quoted about 12k on both plus down payment

cash situation is fine, I have it, I would also prefer to keep it in the bank but refinancing down the line scares me as rates may go up even though my credit would be flawless

And yes, I can totally attack it down to 20% easily...

Tim Johnson · Answer

Whats your PMI rate on conventional?

Whats your cash to close on the FHA?

Whats your cash to close on the conventional?

Hows your cash position?  Cash to close any issue?

I personally like cash in the bank and would go with the lower cash to close and then a refi in 5 years, if your at 5 DTI so you can pay that mortgage down in a hurry and get a great refi rate on a low LTV refi.

Jessica Thomas · Answer

Raising credit much more is not an option. I need to purchase soon. I've already done everything possible to raise it.

Which loan? 97 conventional or 96.5 fha?

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